The data center sector has been a dynamic place over the last decade, with lots of money passing through and plenty of technological shifts to adjust to. But while it may seem as if M&A has touched everyone, there are some players that have managed to chart an organic path, such as Data Foundry. They have steadily built out a footprint in Austin and Houston and are now looking at further expansion opportunities. With us today to talk about their view of the market are Mark Noonan, Chief Revenue Officer, and Edward Henigin, Chief Technology Officer.
TR: What are your backgrounds and what was your journey to your current position at Data Foundry?
EH: I've been working for our same owners with Texas.Net starting fresh out of college back in 1994. I got a physics degree, but I had a strong interest in programming and computer networking, so finding an opportunity at an internet provider start-up was. I've just been growing and evolving my role here ever since, and Texas.Net effectively evolved into Data Foundry around 2000 when we built our first data center in a bank underutilized vault in downtown Austin.
MN: I have been with Data Foundry since 2000 after getting my feet wet in technology working for Dell for a few years. I was hired in a direct sales role at the time and have progressed up to now be in charge of all revenue departments, anything in a supportive role to the revenue generation of the business.
TR: When I last talked with Data Foundry, you were just breaking ground on Texas 1. What does Data Foundry’s infrastructure look like today?
EH: Texas One launched in 2011 with a 125,000-square-foot shell. At the time, we finished out one of the three data halls. Pretty quickly after opening we went forward and finished out the second of the three data halls. In 2014-2015 we bought land on an 18 acre property in North Houston and built another data center from the ground up, Houston 2. This time it was a shell of a little north of 130,000-square-feet, and we similarly finished out the first of two data halls at that time. Since then we have expanded into the final remaining data hall at Texas One, and launched an expansion on the Texas One campus, which we now call the Data Ranch. On it we built an adjacent data center, Texas Two, finishing out the first of two data halls there. And right now, we're also finishing out the second data hall back in Houston 2. So we are just ping-ponging back and forth, building and expanding in both the Austin and Houston markets.
TR: When will the expansion at Houston 2 be ready?
EH: We are just finishing that up now.
MN: Yes, we will actually be having a secondary grand opening of that second half of that building in the third week in January, but the construction and completion is slated to be within the first couple weeks of January.
TR: Is that new space mostly leased already?
EH: No, this isn't Northern Virginia – actually I have heard that Northern Virginia actually is building a lot on spec too. We're a retail colo provider and our owners are highly entrepreneurial. They have always looked ahead to where the market is going, and we build data center capacity before we have customers.
MN: That said, we are actively working a couple of large opportunities who would potentially be the first customers in that pod. Heading into next year we have a focused goal to start selling that inventory sold and get the cash flow flowing for that that new space.
TR: Do you focus on enterprise or wholesale colo customers?
MN: We play in both spaces, but we've definitely grown organically chasing the enterprise space. That's definitely been a big core of our success. But in recent years we have pivoted and done some wholesale opportunities, and we envision doing those going forward as well.
TR: What type of wholesale opportunities are you looking at? Hyperscalers?
MN: We're certainly servicing the hyperscale space, but also larger enterprise users: people that own many real estate assets themselves, but have matured as a business to decide that they prefer to leverage colo facilities as part of their IT strategy. We're servicing quite a few very large Fortune 100 and Fortune 500 companies that have reached that point.
TR: On the enterprise front, what verticals do you see the most opportunity in?
MN: Texas as a whole is a pretty diverse market. Houston is always thought of as being very oil and gas oriented, and certainly we have our share of the energy vertical. But we also see a lot of financial services and technology, and we serve some very large retail providers. We serve some very meaningful healthcare entities as well. We have a couple of very large clients that have consolidated many legacy, cobbled-together data center sites into our buildings. We service companies to whom their IT operations are valuable. If it's not valuable, then you can just keep it in your phone closet. But if IT is meaningful to you, then that’s going to be true across all different sectors and especially in Texas.
TR: How do shifts in technology affect your infrastructure planning?
EH: For us it's really around the broader trend and direction for data center components: UPS, generators, chillers, switch gear, etc. The overall design is very simplified and clean. We're not going into exotic cooling or backup strategies. New UPS models get released every few years that are a little more efficient than the old ones, for generators we're kind of consolidating a sweet spot in terms of price. It's very evolutionary, trending towards squeezing out costs for things that aren't meaningful to customers while at the same time maintaining our standards for quality for the things that do matter.
TR: Have you seen significant demand for higher density colocation?
EH: We are now seeing some higher density cabinets really becoming a bit more common. However, back in 2009 when we were designing Texas One the Uptime Institute released reports forecasting a massive exponential growth. They were predicting massive increases in power density on the colo floor. We were kind of anxious because we didn't really believe those reports but at the same time we couldn't completely ignore them. So we did design Texas One to be a bit higher in power density and then it didn't really come to pass. Even coming into 2019, the overall trend has been a slow increase in overall power density. But in the last year or two, we are seeing more material deployments that actually do have some meaningful per cabinet power. I think it's driven by these guys that are doing massive data processing, whether for AI, simulations, modeling. But those also require lots of storage, and the thing about storage is that's relatively low power density. So it all kind of balances out at the end of the day. So as a retail colocation operator that builds prospectively, we have to be flexible and adaptable to whatever comes through the door next. We try not to paint ourselves into a corner by having perfectly-optimized floorspace relative to the power that we deliver. We need to be able to accommodate a mix or a range of low to high density.
TR: Do you have plans for expansion after Houston? If so, would you be scaling your current facilities or adding new markets?
MN: I think a focus on expanding Austin definitely in our near-term plans. But the idea of evaluating other markets for expansion is definitely in the conversation as well. We don't have a specific market that we have fixed on, but we are thinking beyond just Texas. We like the markets that we're servicing in Texas now. We feel like Dallas has a plethora of providers and options, so that probably isn't something we would want to go into.
TR: Data Foundry has somehow managed to stay out of the consolidation game on either side. How do you compete with your larger, more acquisitive competitors?
MN: I definitely think we become more and more unique by the day. We actually get asked that question by a number of people, from clients to bankers to people that are in our industry, because we of our unique organic approach, staying out of mergers and acquisitions and things like that. The owners are just very focused at running the business, and they are not really in the endgame exit strategy mind-set. We are a successful company and we kind of hang our hat on the fact that we view ourselves as different in this way. We are large enough and play on big enough scale that we build a really high-end data center. A prospective client can tour our building and tour the buildings of our large competitors, and they can really quite easily see that our building is better built. Our niche and our market is that we are very much a full-service colocation provider. We are in the business of helping engage on the front end: helping visualize footprints, layouts, custom CAD drawings, etc. And, quite honestly, our competitors are just don't do that. That's really not a part of their process.
TR: What challenges do you see ahead for the data center sector?
MN: We are realists, so certainly public cloud adoption is an issue for the data center industry as a whole. Anyone who doesn't believe that isn't really paying attention, because the Amazons and the Microsofts of the world are doing quite well and they're certainly chipping into the data center and colocation space. But at the same time, it's organically creating opportunities to actually have those cloud providers and hyperscalers as clients directly, as they expand into new markets and get closer to the edge and add regional footprints.
EH: Companies are different points on the curve when it comes to figuring out what workflows belong in the cloud and what workflows belong on their own IT infrastructure. When you combine that with the fact that a lot of enterprises still have a lot of their IT infrastructure in-house, I think there’s going to be a bit of sloshing back and forth of IT workload between in-house data centers, clouds, and outsourced data centers. Ultimately, I think what you're going to see is little to no in-house data center, a lot of base load and highly valuable IT operations happening in data centers like ours, and a lot of burstable or other specialized (e.g. AI, ML) happening in cloud environments. But while the whole world goes through that transition, what we have seen so far has been fairly comfortable, steady growth. So even though cloud is growing faster than anything else in the world, we are also growing as well, in parallel. We see it as a communications challenge: helping enterprise customers understand that not all IT work will belong in the cloud. We've already got plenty of evidence, years of experience from people who've gone 100% Cloud and pulled back from it. But it’s definitely an interesting place that we're navigating.
TR: Thank you for talking with Telecom Ramblings!
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